Break-even ROAS
Break-even ROAS is the minimum return on ad spend that keeps a campaign at zero profit and zero loss. It's calculated by dividing 1 by your product's total margin ratio after product cost, shipping, and returns. If your margin is 40%, your threshold is 2.5—anything below that means you're paying the ad platform more than you keep.
Also calledbreak-even returnad return threshold
The formula
Break-even ROAS = 1 ÷ Total margin ratio
- Total margin ratio: (Selling price − Product cost − Shipping − Packaging − Return cost share) ÷ Selling price.
- Return cost share: cost of returning rejected parcels, distributed across delivered orders.
- Result is a ratio, not a percentage: 2.5 means you need 2.5 units of delivered revenue for each unit of ad spend.
Worked example
A skincare product in Morocco
- 1Selling price: 299 MAD.
- 2Product cost 90 MAD, shipping and packaging 35 MAD.
- 3Returns: of every 100 confirmed orders 65 deliver and 35 are rejected; return cost 25 MAD each, or 35 × 25 = 875 MAD spread across 65 delivered = 13.5 MAD per order.
- 4Margin per delivered order: 299 − 90 − 35 − 13.5 = 160.5 MAD.
- 5Margin ratio: 160.5 ÷ 299 = 53.7%.
- 6Break-even threshold: 1 ÷ 0.537 = 1.86.
Takeaway: Any campaign returning less than 1.86 on this product is losing money, even if your ad dashboard looks green.
What it means in practice
Break-even is not one number for the whole store. Every product has its price, cost, and delivery rate—so it has its own threshold. A product with 60% margin breaks even at 1.67; one with 25% margin breaks even at 4. Running both by the same rule means killing a profitable product or financing a losing one.
When delivery rate drops, break-even threshold rises automatically, because every rejected parcel adds shipping cost your successful orders have to absorb. Recalculate your threshold each month using the actual delivery rate from the last 30 days, not the figure you assumed at launch.
If you want profit instead of break-even, raise the threshold by your target profit: a 20% profit target on selling price means dividing 1 by (margin ratio − 0.20). At 53.7% margin your target becomes 1 ÷ 0.337 = 2.97.
Raising price is the fastest way to lower threshold: if costs stay fixed, margin ratio rises and threshold falls, as long as conversion doesn't collapse and erase the gain.
Common mistakes
- Calculating threshold from margin before deducting shipping and packaging, which gives a false low threshold that makes losing campaigns look profitable.
- Forgetting the cost of rejected parcels: in cash-on-delivery you pay both-ways shipping on parcels that didn't sell, a cost your successful orders have to absorb.
- Using one threshold for your whole store when products have different prices and margins.
- Ignoring confirmation team commissions tied to order count—they're variable costs deducted from margin before calculating threshold.
Questions and answers
How do I calculate break-even ROAS quickly?
Divide 1 by your total margin ratio. 50% margin gives 2, 33% gives 3, 25% gives 4. The key is calculating margin after product cost, shipping, packaging, and return costs, or your threshold will be lower than reality.
Should I stop every campaign that falls below threshold?
Not immediately. Give a campaign enough orders before you judge, because small samples swing wildly. But a campaign that stays below threshold after a reasonable volume is draining your capital, and keeping it running bets on improvement with no clear reason.
What's the difference between break-even ROAS and target ROAS?
Break-even is zero: at that point you make no profit and have no loss. Target ROAS is higher by the profit you want from each order. Set campaign operations by target ROAS and use break-even as a red line for stopping, not as a goal.
Does the threshold change if I switch delivery companies?
Yes. A new company changes shipping price, return cost, and delivery rate—all inside the margin calculation. A slightly more expensive company with a higher delivery rate might lower your threshold, not raise it, so calculate the impact with real numbers before switching.
Sources
- 1.Cash-on-delivery profit calculator · SymplysisAI